Schwartz v. The Insurance Company of the State of Pennsylvania
(Tex.App.- Houston [1st Dist.] June 19, 2008)(Hanks)
health insurance coverage, delay in approval)
Justice George C. Hanks, Jr.
Before Justices Nuchia, Hanks and Higley
01-07-00193-CV Rosa Schwartz v. The Insurance Company of The State of Pennsylvania, Gallagher
Bassett Services, Inc., and Belinda Ybarra
Appeal from 295th District Court of Harris County
Trial Court
Judge: Hon. Tracy Christopher  


    Rosa Schwartz sued The Insurance Company of the State of Pennsylvania, Gallagher Basset
Services, Inc., and Belinda Ybarra (collectively, “Gallagher”) for damages arising from Gallagher’s
alleged unreasonable delay and denial in authorizing her requested foot surgery. The trial court granted
Gallagher’s plea to the jurisdiction. In two issues, Schwartz contends that the trial court erred in (1)
ruling that she failed to exhaust administrative remedies on her claims stemming from Gallagher’s
refusal to pay for her foot surgery and (2) granting Gallagher’s plea with respect to her claims arising
from Gallagher’s refusal to pay for the care of the neuroma on her foot. We affirm.


    On March 24, 2003, Schwartz’s foot was injured within the course and scope of her employment. She
was referred to Stephen R. Densen, M.D., who diagnosed her with a fractured toe. In July 2003,  
The specific date when Dr. Densen filed the preauthorization request is not readily apparent fromthe
record. Gallagher’s claim notes show that the faxed request was received by its medicalnecessity
reviewer on July 17, 2003.

Close Dr. Densen submitted a request for preauthorization for surgery with Schwartz’s employer’s
insurance carrier, Gallagher. On July 21, 2003, Gallagher’s medical necessity reviewer sent Dr. Densen
notice that it was denying preauthorization based on its doctor’s recommendation.

    Following the denial, Dr. Densen appealed the decision and continued to work with Gallagher and its
medical reviewer in order to get the requested surgery approved. In October, Gallagher scheduled an
independent medical examination to address the dispute surrounding the surgery’s necessity. On March
16, 2004, Anthony Lamarra, M.D. conducted the independent examination of Schwartz’s toe and agreed
that she should receive the requested surgery. Dr. Lamarra also noted that Schwartz’s foot had a
neuroma deformity which should be treated, possibly by surgery.

    In April, Dr. Densen filed another request for preauthorization for toe surgery. Gallagher’s medical
necessity reviewer again denied the request, after its reviewing doctor recommended the denial.  
The doctor who reviewed the medical necessity of Dr. Densen’s second preauthorization requestwas not
the same doctor who reviewed the first preauthorization request.

Close However, on April 26, Gallagher overrode the medical necessity reviewer’s denial and approved
the surgery.

    On May 27, Dr. Densen performed the surgery and noted “Unfortunately, [due to] the delay in timely
approval for the initial surgery I requested, the injury developed into a more serious condition which
required additional treatment including a second surgery.” In 2005, Dr. Densen performed this additional
surgery to correct Schwartz’s neuroma deformity.

    Schwartz sued Gallagher on July 11, 2005, alleging claims for violations of the Texas Insurance Code
and Deceptive Trade Practices Act, breach of the duty of good faith and fair dealing, and legal malice.
Two days later, Gallagher sent Schwartz notice that it was disputing that Schwartz’s compensable injury
extends to her neuroma deformity. Nevertheless, in September, the parties entered into a benefit
dispute agreement, in which they agreed that the neuroma deformity was compensable.

    In December 2006, Gallagher filed a plea to the jurisdiction. The trial court granted Gallagher’s plea
and dismissed Schwartz’s suit. Schwartz filed a motion for new trial, which the trial court denied. Schwartz
now appeals.

Plea to the Jurisdiction

    In both of her issues, Schwartz asserts that the trial court erred in granting Gallagher’s plea to the
jurisdiction. A plea to the jurisdiction contests a trial court’s subject matter jurisdiction. Tex. Dep’t of
Transp. v. Jones, 8 S.W.3d 636, 638 (Tex. 1999). Whether a court has subject matter jurisdiction is a
matter of law. Tex. Dep’t of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004). Accordingly,
we review a challenge to the trial court’s subject matter jurisdiction de novo. Id. at 228.

    When reviewing a plea to the jurisdiction, we must look to the allegations in the pleadings, construe
them in the plaintiff’s favor, and look to the pleader’s intent. See County of Cameron v. Brown, 80 S.W.
3d 549, 555 (Tex. 2002). In doing so, we consider the facts alleged in the petition, and to the extent
relevant to the jurisdictional issue, any evidence submitted by the parties to the trial court. See Bland
Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000). The plaintiff bears the burden to allege facts
affirmatively demonstrating the trial court’s jurisdiction to hear a case. See Tex. Ass’n of Bus. v. Tex. Air
Control Bd., 852 S.W.2d 440, 446 (Tex. 1993). If a plaintiff pleads facts that affirmatively demonstrate an
absence of jurisdiction and the defect is incurable, then the cause is properly dismissed. Peek v. Equip.
Serv. Co. of San Antonio, 779 S.W.2d 802, 805 (Tex. 1989). However, when the plaintiff fails to plead
facts that establish jurisdiction, but the petition does not affirmatively demonstrate incurable defects in
jurisdiction, the issue is one of pleading sufficiency, and the plaintiff should be afforded the opportunity
to amend. Brown, 80 S.W.3d at 555.

Failure to Exhaust Administrative Remedies

    In her first issue, Schwartz asserts that the trial court erred in granting Gallagher’s plea to the
jurisdiction and impliedly ruling that she failed to exhaust her administrative remedies on her claims
stemming from Gallagher’s refusal to pay for her foot surgery. Schwartz contends that the exhaustion of
remedies doctrine is inapplicable because she had no administrative remedies to exhaust. In support of
this contention, she argues that the Texas Workers’ Compensation Commission (“the Commission”)  
The Texas Workers’ Compensation Commission was replaced in 2005 by the Texas Departmentof
Insurance, Division of Workers’ Compensation. See Tex. Lab. Code Ann. § 402.001 (Vernon2006).

Close would have dismissed any attempt she made to exhaust administrative remedies because no
dispute as to medical necessity existed.   See 27 Tex. Reg. 12282, 12302 (2002) (former 28 Tex. Admin.
Code § 133.308(i)(1), effectiveJan. 1, 2003) (noting that the Commission may dismiss a request for
medical necessity disputeresolution if the requestor informs the Commission, or it otherwise determines,
that the dispute nolonger exists), amended by 31 Tex. Reg. 10314 (2006) (current version at 28 Tex.
Admin. CodeAnn. § 133.308(h)(1) (2008)).

Close According to Schwartz, there was no dispute as to the medical necessity of her surgery at the time
the underlying lawsuit was filed, because Gallagher ultimately agreed that the surgery was necessary.
We disagree.

    Schwartz contends that Gallagher’s ultimate approval of the surgery precluded any need for her to
exhaust administrative remedies. See Tex. Mut. Ins. Co. v. Ruttiger, No. 01-06-00897-CV, __ S.W.3d __
2008 WL 184240 (Tex. App—Houston [1st Dist.] Jan. 17, 2008); In re Tex. Workers’ Comp. Ins. Fund,
995 S.W.2d 335 (Tex. App—Houston [1st Dist.] 1999, orig. proceeding). However, “[t]he fact that the . . .
surgery w[as] ultimately authorized does not constitute any type of determination by the Commission that
the initial denial . . . [was] improper. Therefore, there does remain a dispute for the Commission to
resolve.” In re Tex. Mut. Ins. Co., No. 05-05-00944-CV, 2005 WL 1763562, at *2 (Tex. App.—Dallas July
27, 2005, orig. proceeding). Accordingly, an unresolved dispute as to the surgery’s medical necessity in
July 2003 still existed when Schwartz filed suit.

    The Legislature has given the Commission exclusive jurisdiction of disputes over preauthorization of
medical treatment. See Am. Motorists Ins. Co. v. Fodge, 63 S.W.3d 801, 803 (Tex. 2001) (citing Tex.
Lab. Code Ann. § 413.031). The Commission must have determined that the medical treatment was
entitled to preauthorization before a trial court can adjudicate a claim arising from a carrier’s delay or
denial of preauthorization for such treatment. See Pickett v. Tex. Mut. Ins. Co., 239 S.W.3d 826, 836
(Tex. App.—Austin 2007, no pet.) (relying on Fodge); In re Tex. Mut. Ins. Co., 2005 WL 1763562, at *2
(same); Malish v. Pac. Employers Ins. Co., 106 S.W.3d 744, 746 (Tex. App.—Fort Worth 2003, no pet.)
(same). The Commission has promulgated specific administrative remedies for the resolution of medical
necessity disputes.  
See generally 28 Tex. Admin. Code Ann. §§ 133.305, .308 (2008); § 134.600 (2008). For
theAdministrative Code sections in effect when Gallagher initially denied preauthorization and
whichapply in this appeal, see generally 27 Tex. Reg. 12282 (2002) (former 28 Tex. Admin. Code §§133.
305, .308, effective Jan. 1, 2003), amended by 31 Tex. Reg. 10314 (2006); 27 Tex. Reg. 12359(2002)
(former 28 Tex. Admin. Code § 134.600, effective Jan. 1, 2003), amended by 29 Tex. Reg.2349 (2004);
31 Tex. Reg. 3566 (2006).

Close Exhaustion of these administrative remedies is necessary for a claimant to receive a favorable
Commission determination on the necessity of the medical treatment. See Pickett, 239 S.W.3d at 837.

    Because neither her petition nor the record shows that Schwartz exhausted these administrative
remedies and obtained a Commission determination that the surgery was medically necessary when first
requested, we hold that the trial court properly granted Gallagher’s plea to the jurisdiction.  
We also note Schwartz’s policy concern that requiring exhaustion of remedies in this situation willforce
parties to go through the administrative process rather than attempt to informally settle
apreauthorization dispute. We agree that the Legislature has provided protection for the
informalsettlement of medical necessity disputes. See, e.g., Tex. Lab. Code Ann. § 413.014(f)
(Vernon2006) (an insurance carrier cannot be hindered from voluntarily discussing prospective
medicaltreatment with the injured employee’s health care provider or from voluntarily preauthorizing
theagreed-upon treatment). However, timely resolution of medical necessity disputes is also publicpolicy,
and the administrative steps available to resolve such disputes are guided by mandatory
timerequirements, which help ensure that carriers cannot unreasonably prolong the resolution process.
See generally 28 Tex. Admin. Code Ann. §§ 133.305, .308 (2008); § 134.600 (2008).


    Having held that the trial court properly granted Gallagher’s plea to the jurisdiction, we must
determine whether it properly dismissed Schwartz’s claims. If a claim is not within a court’s jurisdiction
and the impediment to jurisdiction cannot be removed, then the claim must be dismissed; but, if the
impediment to jurisdiction could be removed, then the court may abate proceedings to allow a
reasonable opportunity for the jurisdictional problem to be cured. Fodge, 63 S.W.3d at 805. For
Schwartz to remove the impediment to jurisdiction, she would have to be able to pursue the prescribed
administrative remedies for determining whether the surgery was medically necessary when Gallagher
originally denied preauthorization.

    Following a carrier’s denial, a claimant may request reconsideration of the denied health care within
15 working days of receipt of the denial and shall document the reconsideration request.  
See 27 Tex. Reg. 12359 (2002) (former 28 Tex. Admin. Code § 134.600(g)(1), effective Jan. 1,2003),
amended by 31 Tex. Reg. 3566 (2006) (current version at 28 Tex. Admin. Code Ann. §134.600(o)(1)

Close Here, the carrier’s claim notes state that Dr. Densen appealed Gallagher’s 2003 preauthorization
denial and continued to seek approval for the surgery. However, the record does not reflect that a
documented request for reconsideration was made within 15 days of Gallagher’s July 21, 2003 denial.
Therefore, the impediment to the trial court’s jurisdiction cannot be removed. We hold that the trial court
correctly dismissed Schwartz’s claims.

    We overrule Schwartz’s first issue.

Adequacy of Petition

    In her second issue, Schwartz argues that the trial court erred in granting Gallagher’s plea to the
jurisdiction with respect to her claims arising from Gallagher’s denial of compensation for her neuroma
deformity. We begin, however, by determining whether Schwartz’s petition alleged claims based on
Gallagher’s denial of compensation for her neuroma deformity. We hold that it does not.

    Texas follows a “fair notice” standard for pleading, which looks to whether the opposing party can
ascertain from the pleading the nature and basic issues of the controversy and what testimony will be
relevant. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896 (Tex. 2000). “The purpose of this
rule is to give the opposing party information sufficient to enable him to prepare a defense.” Roark v.
Allen, 633 S.W.2d 804, 810 (Tex. 1982). The test of fair notice is whether an opposing attorney of
reasonable competence, with the pleadings before him, can ascertain the nature and the basic issues of
the controversy and the testimony probably relevant. Bowen v. Robinson, 227 S.W.3d 86, 91 (Tex. App.
—Houston [1st Dist.] 2006, pet. denied). The “fair notice” requirement of Texas pleading relieves the
pleader of the burden of pleading evidentiary matters with meticulous particularity. Id.

    It is undisputed that Gallagher’s denial of compensability of the neuroma deformity occurred after
Schwartz had filed her petition. Nevertheless, Schwartz contends that she complied with the fair notice
requirement, because her petition provided sufficient information to enable Gallagher to prepare a
defense based on its denial of the neuroma deformity’s compensability. Specifically, she argues that
Gallagher understood that it was being sued for its denial of compensation for the neuroma deformity
because her petition broadly alleged that Gallagher “chose to deny timely payment of benefits and
continually deny payment for necessary medical treatment.” Schwartz asserts that Gallagher should
have filed a special exception if it wanted to narrow the scope of her pleadings. We disagree.

    Here, Schwartz’s petition did not give Gallagher fair notice that her claims also stemmed from its
denial of compensation for her neuroma deformity. Each claim in Schwartz’s petition specifically
incorporates the petition’s fact section, which only referred to Gallagher’s July 2003 denial for
preauthorization of her toe surgery, not her neuroma deformity. Schwartz never amended her petition to
include any other acts of Gallagher. Accordingly, we hold that Schwartz’s petition does not allege any
claims based on Gallagher’s denial of compensation for her neuroma deformity; the scope of her
petition is limited to claims arising from Gallagher’s initial preauthorization denial. See Auld, 34 S.W.3d at
896. Because the proceedings below did not address Schwartz’s claims based on Gallagher’s neuroma
compensation denial, the trial court’s order granting Gallagher’s plea to the jurisdiction did not address
the claims either.

    We overrule Schwartz’s second issue.Conclusion

    We affirm the judgment of the trial court.

                                                                  George C. Hanks, Jr.


Panel consists of Justices Nuchia, Hanks, and Higley.